My wife and I have two 529 plan accounts with Vanguard for our two kids. My kids' grandparents would like to contribute $75000 into each of our existing 529 accounts by leveraging the below 5-year front-load rule.
"You can front-load a 529 plan (giving 5 years' worth of annual gifts of up to $15,000 at once, for a total of up to $75,000 per person, per beneficiary) without having to pay a gift tax or chip away at the lifetime gift tax exclusion."
Currently, my wife set up an automatic contribution of $1000 into each of the two 529 plan accounts. My question is "will the front-load contribution from grandparents impacts our monthly contributions?" Will our contribution trigger any gift tax issue? How does Vanguard clarify the amounts each person contributes?
529 contributions from grandparents
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Re: 529 contributions from grandparents
I think that your kid's grandparents would create their own 529 plan with them as the owner and kids as the beneficiary. Natural result is that the contribution limits become independent of each other.bfhu wrote: ↑Wed Jul 14, 2021 11:42 pm My wife and I have two 529 plan accounts with Vanguard for our two kids. My kids' grandparents would like to contribute $75000 into each of our existing 529 accounts by leveraging the below 5-year front-load rule.
"You can front-load a 529 plan (giving 5 years' worth of annual gifts of up to $15,000 at once, for a total of up to $75,000 per person, per beneficiary) without having to pay a gift tax or chip away at the lifetime gift tax exclusion."
Currently, my wife set up an automatic contribution of $1000 into each of the two 529 plan accounts. My question is "will the front-load contribution from grandparents impacts our monthly contributions?" Will our contribution trigger any gift tax issue? How does Vanguard clarify the amounts each person contributes?
Re: 529 contributions from grandparents
Ugift is a mechanism + feature of 529 plans where anyone other than the account owner can make a contribution. This successfully creates a paper trail delineation of contribution sources so your personal contribution plans aren’t impacted.
It is certainly fine to have grandparents own separate accounts (and many may prefer that level of control), but if not, I try to make it as easy as possible on people trying to do nice things. Ugift is easier than owning an account.
It is certainly fine to have grandparents own separate accounts (and many may prefer that level of control), but if not, I try to make it as easy as possible on people trying to do nice things. Ugift is easier than owning an account.
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Re: 529 contributions from grandparents
That five-year rule isn't something that involves Vanguard, it's between the contributor and the IRS. That is, Vanguard doesn't file anything with the IRS or enforce that rule in any way; it's just up to you and your parents/in-laws to file your taxes properly. Them contributing to your accounts won't impact your contributions or tax filing at all.
Beyond that, before you decide exactly how you want to approach this, make sure that you understand how different 529 account ownership can affect tax deductibility and financial aid eligibility. If your parents'/in-laws' state of residence doesn't allow 529 contribution deductions then you can ignore that, but if it does then there may be other rules about amounts and account ownership that you'd want to be aware of. Who owns the 529 account will also change your FAFSA calculations, so if you're eligible for aid you'd want to understand those impacts, too.
Re: 529 contributions from grandparents
Thank you. The grandparents are actually foreigners. So they definitely won't get any deductible. They don't have a tax ID. That's why they can't open 529 accounts for their grandchildren. The only way for them to contribute is to contribute to our owned 529 accounts.boringisgood wrote: ↑Thu Jul 15, 2021 8:04 amThat five-year rule isn't something that involves Vanguard, it's between the contributor and the IRS. That is, Vanguard doesn't file anything with the IRS or enforce that rule in any way; it's just up to you and your parents/in-laws to file your taxes properly. Them contributing to your accounts won't impact your contributions or tax filing at all.
Beyond that, before you decide exactly how you want to approach this, make sure that you understand how different 529 account ownership can affect tax deductibility and financial aid eligibility. If your parents'/in-laws' state of residence doesn't allow 529 contribution deductions then you can ignore that, but if it does then there may be other rules about amounts and account ownership that you'd want to be aware of. Who owns the 529 account will also change your FAFSA calculations, so if you're eligible for aid you'd want to understand those impacts, too.
I just thought about another question. The grandparents are foreigners, and do not have a tax id. How can they file the IRS Form 709 without a tax id?
Thanks.
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Re: 529 contributions from grandparents
Ah! That's definitely going to change the possibilities and the requirements here then. I should preface the rest of my response by saying that I don't have any special knowledge of nor experience with this particular scenario as it's not something I've personally had to deal with, so please do your own research and don't rely solely on anything I'm saying here.bfhu wrote: ↑Thu Jul 15, 2021 11:55 am Thank you. The grandparents are actually foreigners. So they definitely won't get any deductible. They don't have a tax ID. That's why they can't open 529 accounts for their grandchildren. The only way for them to contribute is to contribute to our owned 529 accounts.
I just thought about another question. The grandparents are foreigners, and do not have a tax id. How can they file the IRS Form 709 without a tax id?
If your parents/in-laws are foreign citizens and not otherwise obligated to file US taxes, then I wouldn't think that their gifts would fall under those requirements at all. Instead, I would think that they should fall under the "Gifts from Foreign Persons" filing requirements that kick in with gifts in excess of $100K per year:
https://www.irs.gov/businesses/gifts-fr ... ign-person
Assuming that I'm correct about that, how you go about getting the money into the 529s may be much more important than anything else. Ideally you'd want your parents/in-laws to contribute directly to the accounts themselves, and not pass the money through you which would then collide with your own contributions and trigger your own gift tax filing requirements. To do that they would likely need to have an account that could transact in US Dollars for checkwriting or electronic funds transfers.
Re: 529 contributions from grandparents
Thank you for the information. Yes, I already thought about the concern you mentioned. I plan to ask my in-laws to transfer money to their US bank account and send the money directly to Vanguard to depoisit into my kids' 529 accounts.boringisgood wrote: ↑Fri Jul 16, 2021 9:33 amAh! That's definitely going to change the possibilities and the requirements here then. I should preface the rest of my response by saying that I don't have any special knowledge of nor experience with this particular scenario as it's not something I've personally had to deal with, so please do your own research and don't rely solely on anything I'm saying here.bfhu wrote: ↑Thu Jul 15, 2021 11:55 am Thank you. The grandparents are actually foreigners. So they definitely won't get any deductible. They don't have a tax ID. That's why they can't open 529 accounts for their grandchildren. The only way for them to contribute is to contribute to our owned 529 accounts.
I just thought about another question. The grandparents are foreigners, and do not have a tax id. How can they file the IRS Form 709 without a tax id?
If your parents/in-laws are foreign citizens and not otherwise obligated to file US taxes, then I wouldn't think that their gifts would fall under those requirements at all. Instead, I would think that they should fall under the "Gifts from Foreign Persons" filing requirements that kick in with gifts in excess of $100K per year:
https://www.irs.gov/businesses/gifts-fr ... ign-person
Assuming that I'm correct about that, how you go about getting the money into the 529s may be much more important than anything else. Ideally you'd want your parents/in-laws to contribute directly to the accounts themselves, and not pass the money through you which would then collide with your own contributions and trigger your own gift tax filing requirements. To do that they would likely need to have an account that could transact in US Dollars for checkwriting or electronic funds transfers.
Re: 529 contributions from grandparents
I'm just curious, with your prior contributions and $75,000 front load from the grandparents, just how much more do you feel you need to contribute. You don't mention age of kids, but assume they are very young. I know I'd be pretty much finished if that amount had 18 years to grow.